So perhaps Whole Foods won’t be sowing any Wild Oats after all?
Catching up on the past week’s news . . . The FTC is suing to block the planned acquisition of Wild Oats Markets by Whole Foods, saying that the merger could harm consumers by allowing the combined company to charge unreasonably high prices for its organic and natural foods.
This is interesting on several levels. First, as this Wall Street Journal item points out, the FTC during the Bush Administration has not been highly active in blocking deals. More to the point, there are basic questions of whether the FTC’s approach has substantive merit, as discussed in this BusinessWeek article. Choosing among many other stories dissecting the issue, I quote this simple summary from Progressive Grocer:
The FTC’s challenge is that the relevant product market is limited to natural and organic food stores, and excludes other supermarkets. According to Whole Foods, the FTC’s position is contrary to its position in past merger reviews, where its definition of supermarkets has included conventional supermarkets as well as Whole Foods and Wild Oats.
My opinion is that in this case Whole Foods is right, the feds are wrong, and it’s not even close. I’m willing to cite my own experience, unscientific though it is, in support of this view: I sometimes buy groceries at Whole Foods, as well as a Wild Oats-owned Sun Harvest Market around the corner from my house, but I also regularly shop at H-E-B and Randall’s, which is owned by Safeway. Here in Austin — the hometown of Whole Foods, remember — the primary competition for Whole Foods’ mega-flagship store downtown isn’t the little Sun Harvest in my neighborhood, but the large and exquisitely capitalized Central Market stores owned by H-E-B.
If you haven’t heard of H-E-B, (a) you haven’t lived in Central Texas, and (b) it’s not surprising, since even a multi-billion dollar grocery store chain can get overlooked in the broad fragmentation of the grocery industry. And merchants across the category have gotten into organic and natural foods in a big way as US consumers have become more concerned about the environmental and health impacts of the foods they eat. Even if it completes its purchase of Wild Oats, Whole Foods will still be competing with the likes of Wal-Mart, which now sells the cheapest organic coffee (among many other Whole Foods-ish products) you can find anywhere.
I’m all for careful regulation of potentially anticompetitive deals, but in this case, the FTC is barking up the wrong tree.
Category: Consumer goods, Deals5 Comments so far
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[...] I wrote about this in June: My opinion is that in this case Whole Foods is right, the feds are wrong, and it’s not even [...]
[...] own take is that this deal is somewhat like what I said about the Whole Foods acquisition of Wild Oats, which the FTC ridiculously opposed: two niche purveyors [...]
Central Market concept is the standard which unites taste and organic/wholeness/natural. Does anyone know if H-E-B will become an IPO in the near future?
Frank — Haven’t heard anything one way or the other, but I think it’s unlikely that H-E-B will go public anytime soon, first because the Butt family has owned the company for more than 100 years without ever showing signs of going public, and second because the markets aren’t favorable to an IPO of that size right now.
[...] I’m not opposed to restrictions on anti-competitive practices. But — as in the case of the FTC’s asinine attempt to block Whole Foods‘ acquisition of Wild Oats Market last year — the regulatory [...]